3 challenges Tesla faces as shareholders meet

by DEE-ANN DURBIN, Associated Press

This 2015 file photo shows the Tesla Motors showroom in Salt Lake City. Tesla Inc. is riding high as it hosts its annual shareholders’ meeting Tuesday, June 6, 2017. Its shares are trading at record levels, and it has surpassed General Motors and Ford in market value. But the company is not without its challenges. (AP Photo/Rick Bowmer, File)

DETROIT (AP) —

Tesla Inc. is riding high as it hosts its annual shareholders' meeting Tuesday.

Shares are trading at record levels, and Tesla has surpassed General Motors and Ford in market value. It's about to introduce its first mass-market electric car, the Model 3 sedan, as well as a line of solar panels that look like roof tiles. CEO Elon Musk is also enticing fans with new vehicles, including a semi-truck it plans to show this fall.

But the company is not without its challenges. Here are three things shareholders will want Musk to address at the meeting.

CORPORATE STRUCTURE: Shareholders will vote Tuesday on a proposal to elect Tesla's board members annually instead of for staggered, three-year terms.

A group of Connecticut pension funds is behind the proposal. They say annual election of board members improves accountability and can increase shareholder value. They also say conflicts of interest "plague" Tesla's board. Musk's brother, Kimbal, is a board member. Tesla's lead independent director, Antonio Gracias, also serves on the board of Musk's rocket company, SpaceX, and is the CEO of a private equity fund backed by Musk.

Tesla opposes the proposal. The company says its mission requires long-term strategic planning, and three-year terms lets board members think big and not get distracted by short-term returns.

MODEL 3: The Model 3 is Tesla's first non-luxury sedan, with a starting price around $35,000. Production is expected to start next month. Musk is aiming to make 5,000 Model 3 sedans per week by the end of this year and 10,000 per week in 2018.

Whether Tesla can meet those goals is an open question. The company's vehicles have often faced delays getting to market. Its last new vehicle, the Model X SUV, was delayed nearly 18 months. Musk says the Model 3 is much simpler to make. But 14-year-old Tesla has no experience making and selling vehicles in high volumes. Tesla made just 84,000 cars last year. Bigger rivals like GM, Volkswagen and Toyota routinely sell more than 10 million per year.

Even if the Model 3 is on time, servicing all those vehicles will still be a challenge. Model S and Model X owners are already worried about having to share Tesla's Supercharger stations with an influx of new cars. And while Tesla is promising to increase its network of stores and service centers by 30 percent this year, it began 2017 with just 250 service centers worldwide. That leaves many potential owners miles away from a service center.

COMPETITION: Until now, Tesla has owned the market for fully-electric vehicles that can go 200 miles or more on a charge. But that's changing. GM beat Tesla to the mass market with the Chevrolet Bolt, a $36,000 car that goes 238 miles per charge. Audi plans to introduce an electric SUV with 300 miles of range next year; Ford will have one by 2020. Volkswagen plans more than 30 electric vehicles by 2025.

Automotive competitors like Mercedes and Volvo — not to mention tech companies like Google and Uber — can also match Tesla's efforts to develop self-driving vehicles. And they have deeper pockets. Tesla has had only two profitable quarters in its seven years as a public company.

Morgan Stanley analyst Adam Jonas, who has a $305 price target on Tesla's stock, says investors need to consider whether Tesla should continue to operate as a stand-alone market disruptor or if it should merge with a bigger entity, like Apple.

Tesla shares were trading at $357.40, up $10.08, or 2.9 percent, in midday trading.